Instead, Panetta was forced to leave Egypt empty-handed last week, according to the report by the semi-official daily Al-Ahram newspaper.Egypt has dangled Grapel's freedom before the U.S. and Israel several times before, each time tentatively agreeing to let him go, and then suddenly reversing the decision. In mid-September, a Cairo court had decided to extend Grapel's remand by another 45 days, refusing an earlier request by U.S. representatives to set him free.

It was not clear what prompted Egyptian officials to refuse at the last moment to refuse to release the American-Israeli student and increase their prisoner exchange demands.

Egypt is demanding specifically that Israel release three Egyptian minors being held at the Be'er Sheva prison, as well as 78 other Egyptian prisoners.

The Egyptians reportedly made other demands as well, according to Al Ahram, which are under discussion by Jerusalem and Washington D.C. Among these are an American agreement to sell advanced weapons to the Egyptian Army.

Last week, the Israeli Hebrew-language Ma'ariv daily newspaper reported that Israel had agreed to release 25 Egyptian security prisoners currently serving sentences in the Jewish State, including a number who are classified as “high profile,” in exchange for Grapel.

Ilan Grapel, 27, is a dual national who served as a paratrooper in the IDF prior to entering Atlanta, Georgia-based Emory Law School. He reportedly had gone to Egypt to study Arabic culture, having had a lifelong interest in the subject.

He was arrested by Egyptian authorities after arriving for work in Cairo in June, funded by a grant from Emory's Public Interest Committee, according to a post on the school's “Above The Law” blog.

Israel has repeatedly denied that Grapel was working for the Mossad, the country's international intelligence unit.

“This is a student, perhaps a little strange or a little careless,” Foreign Minister Avigdor Lieberman said in an interview on IDF Army Radio earlier this year. “He has no connection to any intelligence apparatus, not in Israel, not in the U.S. and not on Mars.”

Emory Law School dean David Parlett confirmed in a statement sent out in a school-wide email that Grapel was “one of our rising third-year students,” and that he had indeed “applied for, and was awarded an EPIC grant to work in Cairo this summer.” In 2010, Grapel received a grant through the school to work at the Supreme Court of Israel.